Latvian economic growth moves onto productivity track

Labour Force Survey data on the fourth quarter of 2013 posted by the Central Statistical Bureau confirm the previously expected trend that economic growth will become increasingly less based on the employment growth and more on increased productivity. Employment grew by 0.8%, which is one of the weakest performances since overcoming the economic crisis and which could have been predicted from the State Revenue Service data on employees for October and November. Given the significant gross domestic product growth, the rise in productivity could come to 3%, which is one of the most brilliant recent results. Thus, the Latvian economic growth is moving away from the track of extensive development and onto that of intensive development, which is the only chance to continue raising the standard of living.

Actual unemployment continued to drop in the fourth quarter (to 11.3% of the economically active population), despite the AS "Liepājas metalurgs" problem (the impact of this enterprise on unemployment is estimated to be up to 0.2 percentage points). Thus the rise in registered unemployment of recent months reflects the "Liepājas metalurgs" problem as well as seasonal factors and does not indicate a change in fundamental trends in the labour market.

At the end of 2013, the actual unemployment in the euro area stabilized to 12%, which is close to the historically highest level. Yet unemployment in the euro area is high only because of a few countries whose competitiveness, during the economic boom, diminished rapidly and which, at the beginning of the crisis, (unsuccessfully) tried to put off fiscal consolidation (e.g., Spain and Greece). In several euro area countries, the current unemployment rate is close to the average of the last 15 years (including Latvia), and in some countries (e.g., Germany and Estonia), unemployment is currently substantially below the historic average.

Unemployment is expected to gradually drop both in Latvia and in the euro area at large; in 2014 overall, the drop in unemployment may not rise above one percentage point. In the euro area, the unemployment drop could take place mostly on account of cyclical unemployment component in those countries where cyclical unemployment is currently high (e.g., Spain, Greece, Cyprus). In Latvia, cyclical unemployment is either very low or it does not exist at all, and for that reason a sustainable decrease in unemployment is possible only on account of dropping natural (structural) unemployment, which, hopefully, will happen under the conditions of stable economic development and active labour market policies. Yet it cannot happen quickly.